Help on assignment

[emily]

hi
need help on the forex market. i did a search on it, and didnt quite understand.
can i get a little summary on how it works please from a traders point of view.(buy/sell).

where do u think the exchange rate is going in the next 6months(up or down) and why? this is the assignment question but in order to answer this, i need to know the factors that effects the exchange rate. can i have a sumary of the factors that impacts on the market please.


thanx =)

 

[Smurf1976]

From a trader's point of view you're just buying one currency (eg, Japanese Yen) and selling another (eg, US Dollar) with the aim being that the Yen increases relative to the Dollar. You profit from the difference. If it goes the other way, if the Yen fell relative to the Dollar, then you would lose money. Whether the currencies go up or down when measured against any other currency is irrelevant - we are only interested in how they compare to each other.

All currency pairs can be traded in this manner although in general most traders are not interested in less common currencies. Not too many trade forex using the currency of Iraq for example. Even New Zealand isn't that common apart from those who live in NZ and perhaps a few Aussies who find it an easy country to get information about - economic data etc. That said, there is someone, somewhere, trading practically everything. The most common pair to trade is the Euro / US Dollar.

Forex is normally traded on margin. That is, you deposit, say, $5000 margin on a $100,000 position. The upside is that it magnifies your gains. The downside is that it magnifies your losses. So if your trade moves 4% in this example then you either make a $4000 profit or a $4000 loss. So, a 4% move in the currency pair gave you an 80% profit / loss on your deposit.

Needless to say, you can go broke rather quickly doing this if you get it wrong so anyone thinking of trading forex ought to design a system and prove that it works on paper first. Then start trading relatively small amounts until you KNOW that it works. It must have positive expectancy - gains exceeding losses - or you will in due course go broke no matter what size your trades are. And you need to make sure that no single run of bad trades is going to send you broke either. This is done by proper position sizing and placement of stops.

Forex brokers in general will not allow you to trade without using a stop loss. The only way around this in most cases is to deposit sufficient funds to be able to set the stop so high that it becomes irrelevant. This is due to the leveraged nature of forex trading and to ensure that it's your money that is lost if it goes wrong, not the broker's.

I don't have a forecast for the Australian Dollar (AUD) since I don't need one for the way that I trade forex. That said, short term anything can happen in the forex markets but long term we have a Current Account deficit at about 7.2% of GDP which is VERY high compared to other developed countries. This is a negative for our currency which ought to encourage it to fall. On the other hand, demand for Australia's commodity exports counteracts this to some extent at least whilst we have ever rising commodity prices.

Also, it depends what you measure it against. The AUD could rise against, say, the USD (US Dollar) but fall against the NZD (New Zealand Dollar). That's just and example, not a forecast by the way. Likewise any other currency could rise against some currencies whilst falling against others.

It's all relative since there's no fixed point of reference unless you compare the currency value to something physical such as gold or oil. That said, many regard the Swiss Franc as a relatively stable currency against which to compare others. But in practice the US Dollar is the world's reserve currency so most others (including AUD) are usually compared to USD especially by non-forex traders. There can be no guarantee that the USD will always have this role though and many believe that the Euro will replace the USD in this role. (That's just an observation of prevailing opinions and is not a forecast).

 

[Coinz]

Smurf talks a lot but knows little.

You're welcome to email me, Emily.

Coinz

 

[TjamesX]

Smurf talks a lot but knows little.

You're welcome to email me, Emily.

.....and Coinz alludes to the fact he/she 'may' know something but posts nothing.....

At least with Smurfs post I can evaluate the knowledge for myself

 

[It's Snake Pliskin]

Smurf talks a lot but knows little.

You're welcome to email me, Emily.

Coinz

Share your wisdom!

This forum is all about sharing it openly. Why private e-mail, it's not a pick up forum.

 

[Smurf1976]

Smurf talks a lot but knows little.

You're welcome to email me, Emily.

Coinz

And would you like to tell us what your current (open now or at least within the past week) forex trades are Coinz (just to prove that YOU know more than the little that I apparently know)?

The only point that I can see that is even slightly confusing is the way that I have illustrated the effects of leverage using a 4% movement as an example. What I mean there is that your trade is valued at $100,000 at opening and you close it at $104,000. A 4% profit which due to the leverage is, in this example, 80% on your deposited margin of $5000. OK, we don't normally measure forex moves in % but I think I was sufficiently clear there for the purpose of illustrating the effects of leverage. Many people would not understand if I had said that the trade gained or lost x number of pips, so I used % for the hypothetical example to keep it understandable. I probably should have said 4% PROFIT to avoid confusion rather than a 4% move but other than that, it all seems pretty clear. I think most would have understood what I meant.

So tell us all what I have said that is wrong...

We could all learn something that way and I'm always willing to learn...

My present running trades include buy JPY sell CHF and buy JPY sell EUR on the 10/08/2005. You can check these trades for yourself if you wish but suffice to say that they are profitable.

I have no interest in a personal debate here and will not continue one. Let's stick to the markets, trading etc. YOUR answer to the question is, what exactly?

 

[Coinz]

Smurf... *yawn*

Coinz

And would you like to tell us what your current (open now or at least within the past week) forex trades are Coinz (just to prove that YOU know more than the little that I apparently know)?

The only point that I can see that is even slightly confusing is the way that I have illustrated the effects of leverage using a 4% movement as an example. What I mean there is that your trade is valued at $100,000 at opening and you close it at $104,000. A 4% profit which due to the leverage is, in this example, 80% on your deposited margin of $5000. OK, we don't normally measure forex moves in % but I think I was sufficiently clear there for the purpose of illustrating the effects of leverage. Many people would not understand if I had said that the trade gained or lost x number of pips, so I used % for the hypothetical example to keep it understandable. I probably should have said 4% PROFIT to avoid confusion rather than a 4% move but other than that, it all seems pretty clear. I think most would have understood what I meant.

So tell us all what I have said that is wrong...

We could all learn something that way and I'm always willing to learn...

My present running trades include buy JPY sell CHF and buy JPY sell EUR on the 10/08/2005. You can check these trades for yourself if you wish but suffice to say that they are profitable.

I have no interest in a personal debate here and will not continue one. Let's stick to the markets, trading etc. YOUR answer to the question is, what exactly?

 

[Smurf1976]

Smurf... *yawn*

Coinz

Profitable trading does tend to be rather boring. It's LOSING that gets exciting. So I'll take that as a compliment.

 

[wayneL]

Smurf talks a lot but knows little.

You're welcome to email me, Emily.

Coinz

Coinz,

The object of a public forum is to discuss things....in public.

This way everyone benefits. If we all start emailing each other, the forum dies.

Likewise, if we all insult each other, there will be some brief excitement, but then our more earnest contributers will drift off to more productive pursuits...same result, the forum dies.

In saying that we don't mind, and encourage robust debate. I know you will keep that in mind from now on.

Thanks.

 

[money tree]

Coinz, Im wondering why a Yank (with typical arrogance and ignorance one would expect) is hanging around on a forum called AUSSIE STOCK forums. You aint aussie, you dont trade stocks, and certainly dont trade aussie stocks.

Add to that the fact that 100% of your posts are insults. Great track record.

"oh say can you see........"

 

[emily]

blahhhhhhhhhhhhhhhhhh......

hey,
Is there a website where i can get current information(facts and figures) for the following:
- supply and demand for currency (AUD)
- figures on current import and export of australian goods and services
- figures of capital inflow (borrowing from overseas or investments from
overseas) and figures in capital outflow (overseas investments/lending)
- inflation rates and purchasing power parity
- economic growth rates
- interest rates
- commodity prices
- international speculation and investment

i just need these information so i can determine from my perspective view if the exchange rates is increasing or decreasing in the next 6months.

 

[bvbfan]

Is there a website where i can get current information(facts and figures) for the following:
- supply and demand for currency (AUD)

Don't think there is specific data for supply and demand as such

- figures on current import and export of australian goods and services
- figures of capital inflow (borrowing from overseas or investments from
overseas) and figures in capital outflow (overseas investments/lending)
- inflation rates and purchasing power parity
- economic growth rates
- interest rates
- commodity prices
- international speculation and investment

These should be covered by the RBA and ABS

i just need these information so i can determine from my perspective view if the exchange rates is increasing or decreasing in the next 6months.

You may also want to check the US Federal Reserve

 

[emily]

thnx..............
umm whats the us,japan,europe's inflation rate, and economic growth rates,commodity prices, exports and imports?
can u give me where u got the sources from...

 

[bvbfan]

thnx..............
umm whats the us,japan,europe's inflation rate, and economic growth rates,commodity prices, exports and imports?
can u give me where u got the sources from...

Try the Bank of Japan, European Central Bank (www.ecb.org)?
Bloomberg might also have some info there

Commodities prices try Kitco, London Metals Exchange (www.lme.co.uk), Chicago Board of Trade (www.cbot.com), Comex
If you mean general commodities, if you want a gauge of commodity prices try the CRB Index (http://www.crbtrader.com) or the Goldman Sachs Commodity Index

Google will get you all you need if you spend some time going through different searchs

 

[emily]

thanks alot.........

at first i thought the foreign exchange market is pretty crap, but now im begining to like it.......i am now self-learning more about it.
can u tell me if this is right please..........

for example........
lets just say capital $5000

Trade AUD/USD at 0.77 (lets round off to make things easier)
so.... 5000 x 0.77 = 3850 <--- this means traded 5g for 3850 US right ?

2weeks later....
say AUD/USD at 0.75
so 1 dollar of US is 1.33 AUD

= 3850 x 1.33
=$5133 AUD <----so trade 3850 US for 5133 AUD
$133 profit ?..................

is that right???

 

[bvbfan]

calculations looks right but you need to think about fees.

With FX trading currencies you'd be taking larger positions probably $100,000 US as minimum contract (you can leverage with $5000 depending on the company)

Have a look at the FX threads, but what you say 'could' be done with buying USD notes then selling them back
Of course you'd need to find a place that would give you very close to the spot price which is unlikely, banks and FX converters usually charge a large spread.

 

[emily]

can i ask....... where do u think the interest rates is going in the next 6months... and why?

emily =)

 

[krisbarry]

Up by 0.25%, inflation levels are on the rise. RBA will raise them no doubt within the next 6 months, as the upper levels of inflation are being tested as of late.

Baby Bonuses have been spent and major tax cuts for the wealthy have been passed all driving up spending, and thus inflation.

Petrol is driving up the cost of everything!

Raising rates will keep the RBA level of inflation under the 3% target range.

 

[Smurf1976]

I see two distinct possibilities here.

1. Interest rates rise as inflation exceeds the upper limit of 3%. Combined with the petrol prices this would seriously kill a housing market that, in Sydney, is already falling at crash pace of 1% per month.

2. Interest rates are cut as the economy starts to noticeably sag under the weight of the housing slump, rising oil prices and the general effects of massive consumer debt.

Inflation would be allowed to exceed the upper limit, probably by some form of moving the goal posts. For example, they could start averaging it over 5 years or something like that and still claim it's under 3%. Or they could just point out that inflation isn't the only goal of setting interest rates and mutter something about the national interest as justification for a cut. Things that are fixed, like the 2 to 3% inflation target, have a habit of becomming unfixed as soon as the target is actually hit.

If we go down this track then the falling rates / rising inflation scenario is typical leading into a recession to my understanding of history. While raising rates won't help the economy, at least a decision to do so would be a sign that the RBA sees the economy as strong. I doubt that will occur though of course it is possible.

Which of the two options do I think is more likely? Option 2 with the probable means of fudging the inflation having something to do with excluding "temorary" oil price rises or arguing that it is now more relevant to count bus/train fares and not petrol...

 

[bvbfan]

For my last assignment (with SIA) I forecast that rates would move up 25bp at December meeting, that was before the rise of petrol prices to current levels.

Now I'm just wondering whether retail sales will decline to pay the increased costs of travel. Personally I think it won't flow through just yet and inflation will pick up, retail sales will plateau out, and credit growth (credit card debt) will probably increase for next quarter or two.

I think the rising rate of inflation will force the RBA to move rates up, unless of course they somehow 'discover' that modern cars are using less petrol and can introduce a fudge factor into the CPI calculations, of course cars are now consuming 2.5L more per 100km than 5 years ago (it may be 10yrs, as I saw on report last few days)
They may also decide to exclude petroleum products from CPI but I can't see that happening

As Yaaz said in that 80's classic 'The only way is up'